China and the Congo: The battle for resources

China's role in developing countries, specifically Africa, is an important and growing one that I beleive deserves more attention.

The FT covered this issue recently. Whilst this case is specific to Congo the general prenmise behind China investment in Africa is a complex one. With the continued commodity boom and high prices control over resources into the future is crucial.

China's continued interest in Africa should not be underestimated.

Alarm over China’s Congo deal

Mining companies, the International Monetary Fund and other donors were scrambling on Wednesday for clarification of a planned deal between China and the Democratic Republic of Congo.

The deal would tie up mineral resources in exchange for $5bn (€3.6bn, £2.5bn) in infrastructure projects and loans. A preliminary agreement was signed this week just as an IMF mission landed in Kinshasa to review progress towards the resumption of budget support for Congo.

IMF, World Bank and African Development Bank officials seem to have been caught offguard by the scale and timing of China’s plans.

These come at a delicate stage in Congo’s negotiations towards forgiveness of debt accumulated under the dictator Mobutu Sese Seko, who died in 1997, totalling about $8bn, or equal to 800 per cent of current national exports.

Western mining groups, awaiting the results of a government review of about 60 contracts signed during the recent civil war, were also seeking more details from the Kinshasa government.

The Katanga region of Congo has some of the world’s best deposits of copper and cobalt. Other areas host rich sources of minerals including diamonds, gold, iron and uranium.

After years of war, dictatorship and turmoil, however, the country’s infrastructure is either non-existent or in ruins, and extraction operations are producing at a fraction of their potential.

IMF and World Bank officials have acknowledged the scale of Congo’s infrastructure needs. But they are seeking to ascertain whether the Chinese loans are in line with Kinshasa’s commitment under the financial institutions’ heavily indebted poor countries debt reduction initiative not to contract new debt on anything but concessional terms.

In a best-case scenario, the IMF would restart a lending programme – the last one stalled in 2006 because of poor implementation – and Congo would stand to benefit from an 80 per cent write-off of its external debt in mid-2008 at the earliest.

“If the terms of the deal do not meet the concessionality issue, that would be a concern,” said an IMF official.

Most of the mining activity in the country is being carried out by smaller, more entrepreneurial companies. Large western mining groups are keen to gain access to these resources to replace their dwindling deposits but have largely held back from investing in the country – put off by continuing unrest, widespread corruption and the lack of infrastructure.

Alex Gorbansky, managing director of Frontier Strategy Group, a political risk consultancy, said China’s $5bn draft agreement with Kinshasa would put pressure on both the large mining companies looking to get in and the small miners already there.

“It will give China a distinct advantage in the Congolese copper belt,” he pointed out.

He said large western mining groups, such as Anglo American and Rio Tinto, were spending increasing amounts of time and money weighing opportunities in Congo. But China’s move might mean they had left it too late to secure the best assets.

Mr Gorbansky added that there was a risk that some of the mining licences held by smaller companies could be transferred to Chinese investors but Victor Kasongo, the country’s deputy mines minister, insisted this would not be the case.

Research paper: "Construction, Corruption, and Developing Countries"

In China the construction industry is one of teh largest sectors and the from the construction industry for raw materials from Africa and the rest of the world shows no sign of abating.

This new World Bank researh paper may therefore be of interest.

"Construction, Corruption, and Developing Countries"
World Bank Policy Research Working Paper No. 4271


Contact: CHARLES KENNY
World Bank Group - Information and Communications
Technologies Department (ICT)
Email: CKENNY@WORLDBANK.ORG
Auth-Page: http://ssrn.com/author=272817

Full Text: http://ssrn.com/abstract=996954

ABSTRACT: The construction industry accounts for about one-third of gross capital formation. Governments have major roles as clients, regulators, and owners of construction companies. The industry is consistently ranked as one of the most corrupt: large payments to gain or alter contracts and circumvent regulations are common. The impact of corruption goes beyond bribe payments to poor quality construction of infrastructure with low economic returns alongside low funding for maintenance - and this is where the major impact of corruption is felt. Regulation of the sector is necessary, but simplicity, transparency, enforcement, and a focus on the outcomes of poor construction are likely to have a larger impact than voluminous but poorly enforced regulation of the construction process. Where government is the client, attempts to counter corruption need to begin at the level of planning and budgeting. Output-based and community-driven approaches show some promise as tools to reduce corruption. At the same time they will need to be complimented by a range of other interventions including publication of procurement documents, independent and community oversight, physical audit, and public-private anticorruption partnerships.

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Food safety, Product Quality and Pesticide Use

So China is spening $1 billion on food safety? This is undoubtedly an attempt to reassure the world that Chinese goods are safe in response to numerous product safety stories that have been a staple of the US and world press in recent months.

The fear is that Chinese exports will be negatively affected and whilst Chinese GDP has been growing rapidly along with domestic consumption and incomes, China is still dependent on its export markets.

A reputation for low quality and dangerous goods can takes years to throw off. This is probably a wise investment. The question is why do they not spend more and why wait so long to do it.

China Spending $1 Billion on Food, Drug Safety [PlantetArk]

BEIJING - China will spend more than $1 billion improving food and drug safety by 2010 and the regulator will be given stronger oversight powers, an official said on Wednesday as fears persist over Chinese products.

China has been struggling to convince the world its produce is safe following a series of scandals over tainted pet food, toys, tyres, toothpaste, medicine and fish.

According to a new poll, US consumers are extremely wary of products made in China, and nearly two-thirds said they would support a boycott of Chinese goods.

China's State Food and Drug Administration spokeswoman, Yan Jiangying, said the government had earmarked 8.8 billion yuan ($1.16 billion) for food and drug safety over the current Five Year Plan, which runs to 2010.

Part of this would be spent on a large, new laboratory, she said, adding this was the first time the spending figure had been made public. Yan did not provide a comparison for previous years.

"Once the Five Year Plan has been completed, the abilities and the base of the regulator will be substantially raised," Yan said. "There will be an enormous improvement in the system for guaranteeing food and drug safety for the public."

New rules would give the watchdog the power to seal factories and seize whatever materials they need when probing sub-standard goods, she added.

Yan said her department would also take the safety message nationwide, starting out in the enormous countryside, home to 60 percent of the 1.3 billion population.

"We will focus on rural food safety," Yan said.

A deputy agriculture minister admitted recently that the backward state of Chinese farming was a major obstacle to raising food safety.

Despite repeated government assurances they are taking a responsible attitude towards food and drug safety, there has been little let up in the barrage of bad news.

State media said on Wednesday, the beginning of the one-year year countdown to the Beijing Olympics, the government would launch a campaign to crack down on the use of highly potent and poisonous pesticides which are banned but still in use.

Five pesticides were banned earlier this year, and the Agriculture Ministry was compiling a blacklist of companies still making them, the official China Daily said.

In rural China there was a problem with farmers improperly using chemicals and spraying them on crops just before they were gathered and sold, the report said.

"As part of the government's food safety strategy, it will educate farmers how to properly use pesticides," the newspaper added.

China uses twice as much pesticide annually as is actually needed which has exacerbated the country's food safety problems, it said. (US $1=7.569 Yuan)

This relates to another story in today's PlanetArk:

China to Crack Down on Banned Pesticide Use

BEIJING - China will launch a campaign to crack down on the use of highly potent and poisonous pesticides which are banned but still in use, a state newspaper said on Wednesday, as fears persist over the country's food safety.

Five pesticides were banned earlier this year, and the Agriculture Ministry was compiling a blacklist of companies still making them, the official China Daily said.

Three companies were still allowed to make the chemicals, it added, but only "in emergency situations to control pests, and under strict government supervision", it added.

In rural China there was a problem with farmers improperly using chemicals and spraying them on crops just before they were gathered and sold, the report said. "As part of the government's food safety strategy, it will educate farmers how to properly use pesticides," the newspaper added.

China uses twice as much pesticide annually as is actually needed which has exacerbated the country's food safety problems, it said.

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Pork gets the Chop as Prices Rise

The price of Pork in China is soring - what are the implications and ramifications?

The Pork story is a fantastic illustration of just how Chinese economy is set up to cope with the vagaries of capitalism. Terms such as "strategic reserve" show how the old system works and then the fact that many pig farms shut down because of low prices when previously they would have remained open.

Consumers are also having to adapt to rapidly changing prices. What the Chinese are learning quickly is that capitalism has it's down side. A stockmarket crash will ram this home more forcefully when and not if the bubble bursts.

Rising pork prices in China signal pricier times worldwide

The Chinese government is struggling to cope - including deliberating whether to sell a snuffling, smelly strategic reserve of hundreds of thousands of live pigs kept at special subsidized farms for precisely the shortage the country is now facing.

Chinese officials offer several reasons for the high pig prices. The cost of animal feed has risen by one-quarter in the last year, partly because more corn is being made into ethanol and partly because more prosperous workers are eating more meat.

The cost of pig veterinary medicine has soared. Some pig farms, shut down because of low prices last year, were unprepared for strong demand this spring. And outbreaks of disease have killed many pigs, though no reliable estimates of how many are available.

The most recent statistics from the Agriculture Ministry show that prices for live pigs rose 71.3 percent in April from March, while pork prices climbed 29.3 percent. The price of pork followed pig prices higher in May as well, to the dismay of shoppers.

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The Commerce Ministry keeps a national reserve of frozen pork and live pigs, and local governments keep their own reserves as well, constantly selling older supplies and procuring fresh stock. Government agencies pay a pig subsidy to farmers to keep their animals in the program.

Then there is the knock on effect on inflation:
China's inflation rate hits 27-month high in May

China's inflation in May hit the highest level in 27 months on rising pork and food stuff prices, raising the pressure on the central bank to raise interest rates.

The Consumer Price Index (CPI), a barometer of inflation, rose 3.4 percent compared with the same period of last year, the National Bureau of Statistics said Tuesday, beating the three percent target set by the People's Bank of China for this year.

Other stories:

Pork price rises fuel China inflation fear [Financial Times 28th May]

A disease killing millions of pigs in China has sharply lifted the price of pork, the country’s staple meat, fuelling fears about inflation and prompting a call from the top leadership for increased production of the meat.

Wen Jiabao, premier, provided confirmation of the seriousness of the crisis with a weekend visit to a market in Shaanxi province, where he said farmers should help “resolve the problem” of providing meat for 1.3bn people.

Pork prices have risen by as much as 30 per cent in Chinese cities over the last week. According to the agriculture ministry, wholesale prices for pigs have gone up even more, rising 71.3 per cent since April.

Pig disease sweeps 22 provinces [China Daily 12th June 2007].

The highly pathogenic blue-ear disease hit 22 provinces during the first five months of this year, killing 18,597 pigs, the country's chief veterinarian said yesterday.

Also known as Porcine Reproductive and Respiratory Syndrome (PRRS), the disease was found in 45,858 pigs, leading to the culling of 5,778, said Jia Youling, director of the veterinary bureau affiliated to the Ministry of Agriculture.